Do people want small cars? The market research so far says "not really". Paul Eisenstein has a good compact writeup of the issue here.
Will people buy small cars? Yes, they will, and as time goes on, they will have no choice.
I expect the mechanism for this to be pricing. Automakers will have no choice but raise prices on large and thirsty vehicles, and limit production volumes, to encourage people to buy the smaller cars.
Large, high performance vehicles will continue to be sold, but at a significant price premium.